Does capitalism need democracy?

For the longest time it was believed that capitalism and democracy went hand in hand, but now the Chinese and the Vietnamese have thrown a wrench into the works and shown that our belief might be nothing more than an assumption. On what do we base our assumption that one needs the other?

Political scientists argue that capitalism needs the strong institutes that are inherent in a democratic model. Without a good and independent rule of law, for instance, it is very hard to protect yourself from cheating and theft. When you can’t protect your interest from illegal activities, the argument goes, you can’t have trust and when you can’t have trust capitalism doesn’t work. After all, all capitalist interactions are based on ‘contracts’.

Take money and property, for instance. Money is a contract with everybody else that your work has some sort of numerical value, which other people will then accept in exchange for their own work. Money is no longer even weighed against anything, relying instead on the assumption that the government will only print a finite amount of it, with its finite nature making it valuable. In other words, money only works because we trust that it does.

Property, on the other hand, makes the basic assumption that something can actually be owned solely by one individual and that others will respect that ownership. If we doubted each other and the government’s will and ability to enforce that ownership, then we certainly wouldn’t want to buy property and without property there really can’t be any large scale productivity (e.g. no factories.) Again, that is a trust principle.

So I don’t have a problem with trust being essential for capitalism, what I have trouble with is the implicit assumption that democracy is the only system that can provide these institutes. Where does that assumption come from? Why can’t a dictatorship provide a good rule of law? Yes, if he is an absolute ruler and doesn’t allow any independent institute to exist outside of his own rule, then it will be extremely difficult to build up the necessary levels of trust, but why can’t there be a limited dictatorship, where a court of law is charged with the task of defending capitalism as well as the dictatorship?

In fact, it seems to me that if you want to create a true capitalist model it might even be better not to be democratic, as the People are often anti-capitalist, but some other sort of government that springs forth from the capitalist model (maybe a bidding system for roles in government, with these positions and the governmental model protected by independent institutes?)

I’m not saying that that is a desirable governmental model, mind you, I’m just saying that the implicit assumption that has been made that for capitalism we need democracy needs to be rethought. Capitalism can exist without democracy and in all likelihood democracy can exist without capitalism as well. Whether that is desirable is a different question, entirely.